The U.S. government securities market encompasses all primary
and secondary market transactions in securities issued by the U.S.
Treasury, certain federal government agencies, and federal
government-sponsored enterprises.Government-sponsored enterprises (GSEs) are
publicly-traded corporations created by Congress to address public
policy concerns about the ability of members of certain groups to
borrow sufficient funds at affordable rates. GSEs do not receive
federal funds and rely primarily on debt financing for their
day-to-day operations. GSE securities are not government
securities; however, market participants rate and price GSE
securities similar to U.S. government-issued securities.
Trading in government securities is conducted over the counter
between brokers, dealers, and investors. In over-the-counter
trading, participants trade with one another on a bilateral basis
rather than on an organized exchange. Nearly all U.S. government
securities are issued and transferred through a book-entry system
operated by the Federal Reserve.

In the primary market, U.S. Treasury securities are issued
through regularly scheduled auctions. The Federal Reserve Banks
serve as conduits for the auctions, with the Federal Reserve Bank
of New York coordinating much of the auction activity. Individuals,
corporations and financial institutions may participate in the
auctions. Participation in Treasury auctions, however, is typically
concentrated among a small number of dealer firms, known as primary
dealers.Primary dealers are designated
trading counterparties for the Federal Reserve Bank of New York in
its execu-tion of market operations to carry out US monetary
policy. Currently there are 23 designated primary
dealers.

In the secondary market for government securities, trading
activity takes place between primary dealers and non-primary
dealers. Customers of these dealers are financial institutions,
non-financial institutions and individuals. The majority of
transactions between primary dealers and other large market
participants are conducted through inter-dealer brokers that
provide both anonymity and price information to market
participants. Approximately 2,000 securities brokers and dealers
are registered to operate in the U.S. government securities
market.